Arbitration Issues Arising From Digital Payment Settlement Infrastructure Failures
1. Introduction
Digital payment settlement infrastructure encompasses platforms and systems that facilitate financial transactions, including:
UPI, NEFT, RTGS, and card-based payment gateways
Wallet services and payment aggregators
Cross-border remittance platforms
Bank and fintech-integrated settlement systems
Failures in such infrastructure can lead to transaction delays, fund misappropriation, data errors, or service outages, resulting in disputes between banks, fintech firms, merchants, and end-users. Arbitration is often preferred due to technical complexity, confidentiality, and cross-border operations.
2. Nature of Disputes
A. Contractual Disputes
Breach of service-level agreements (SLA) for uptime, processing time, or settlement guarantees
Misrepresentation of system reliability or capacity
Revenue-sharing or transaction fee disputes due to settlement errors
Non-compliance with operational protocols or settlement timelines
B. Regulatory Compliance Issues
Reserve Bank of India (RBI) guidelines for payment systems
Data security and privacy obligations under the Digital Personal Data Protection Act
AML/KYC compliance impacting settlement operations
C. Technical Disputes
System failures or downtime affecting payment settlement
Software defects, integration errors, or API malfunctions
Security breaches resulting in financial losses
D. Cross-Border Considerations
International payment processors and global fintech partnerships
Enforcement of arbitration awards across jurisdictions
Governing law and arbitration seat selection
3. Arbitration Considerations
A. Determining Arbitrable Issues
Arbitrable: SLA breaches, transaction disputes, technical failure claims, and contractual misrepresentation
Non-arbitrable: Statutory penalties, regulatory sanctions, or criminal liability
B. Expert Determination
Tribunals often rely on technical experts in payment systems, cybersecurity, and fintech operations to determine fault, quantify losses, and validate transaction integrity
C. Confidentiality
Payment settlement infrastructure involves financial and commercial sensitivity, necessitating confidential arbitration proceedings
D. Cross-Border Enforcement
Arbitration clauses must specify seat, governing law, and enforceability under the New York Convention for international stakeholders
4. Key Legal Principles
Primacy of Contractual Clauses
Tribunals enforce SLA obligations, payment settlement commitments, and transaction fee agreements as per the contract.
Pro-Arbitration Approach
Indian courts favor arbitration for commercial and technical disputes, including fintech infrastructure.
Expert Assistance
Technical experts are crucial for assessing settlement failures, software defects, or systemic errors.
Limits of Tribunal Jurisdiction
Tribunals cannot impose regulatory penalties or adjudicate statutory compliance matters; such issues remain with regulatory authorities.
5. Relevant Case Laws (Without External Links)
1. Vidya Drolia v. Durga Trading Corporation (2020)
Principle: Contractual disputes involving rights in personam are arbitrable.
Relevance: Confirms arbitrability of fintech contractual disputes related to payment infrastructure.
2. Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. (2011)
Principle: Contractual rights are arbitrable; statutory violations are non-arbitrable.
Relevance: Arbitration can resolve SLA breaches or misrepresentation but not RBI penalties.
3. Enercon (India) Ltd. v. Enercon GmbH (2014)
Principle: Party autonomy in commercial arbitration is paramount.
Relevance: Supports enforcement of arbitration clauses in cross-border fintech infrastructure agreements.
4. Ssangyong Engineering & Construction Co. Ltd. v. NHAI (2019)
Principle: Tribunals must enforce contractual obligations as agreed.
Relevance: Validates enforcement of SLA and transaction settlement obligations in digital payment systems.
5. McDermott International Inc. v. Burn Standard Co. Ltd. (2006)
Principle: Tribunals may rely on technical and expert evidence.
Relevance: Expert evaluation is critical to determine system faults, integration errors, or downtime damages.
6. Renusagar Power Co. Ltd. v. General Electric Co. (1994)
Principle: Public policy exceptions to enforcement of foreign awards are narrowly construed.
Relevance: Supports enforceability of cross-border arbitration awards in fintech disputes.
7. Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee (2014)
Principle: Commercial and technical disputes are arbitrable unless expressly excluded.
Relevance: Confirms arbitrability of disputes involving complex technical and financial infrastructure.
6. Evidence and Expert Determination
Tribunals rely on:
Payment infrastructure contracts, SLAs, and fintech agreements
System logs, transaction records, and error reports
Expert testimony from software engineers, cybersecurity specialists, and payment system auditors
Financial records to calculate losses or disputed transaction amounts
Expert determination clauses expedite resolution while maintaining confidentiality of proprietary payment system technology.
7. Drafting Recommendations
Clearly define SLA obligations, uptime guarantees, and settlement timelines.
Include revenue-sharing, transaction fee allocations, and milestone payments.
Incorporate expert determination clauses for technical disputes.
Specify arbitration seat, governing law, and institutional rules for cross-border agreements.
Include confidentiality obligations for sensitive financial data.
Define risk allocation for regulatory compliance and technical failures.
8. Conclusion
Disputes arising from digital payment settlement infrastructure failures are largely arbitrable, particularly regarding SLA breaches, transaction disputes, and technical failures. Tribunals rely heavily on technical expert evidence to assess fault and quantify losses. Regulatory penalties and statutory compliance remain outside arbitral jurisdiction. Well-drafted contracts with explicit arbitration clauses, expert determination mechanisms, and confidentiality provisions are essential for minimizing disputes and ensuring enforceable outcomes.
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